Plowing ahead

BNP: Someone should tell Baudouin Prot that it’s not shameful to make a profit. BNP Paribas, the bank he heads, has proved the strength of its oldie-but-goldie universal banking model with a higher-than-expected ¤1.36 billion after-tax profit for the last quarter of 2009. BNP earned some ¤5.8 billion last year. At the pre-tax level, its corporate and investment bank provided half of its income. But BNP is determined that its high-flying traders should not take home too much of the spoils. It is at pains to promote its decision to slash the compensation-to-revenue ratio to 28 per cent, down from the 40 per cent pre-crisis level. Considering that said revenue grew 2.5-fold last year, it's safe to bet that no banker will complain.

BNP has never been known for resisting political headwinds. Throughout the crisis it has always made sure that it stayed on the right side of the French government to avoid becoming a target of President Nicolas Sarkozy’s periodic banker-bashing outbursts. It readily took state capital when rivals were hesitant.

By contrast, rival Societe Generale seemed to be on the end of a constant barrage from Sarko, which ultimately led to the departure of its chairman. True, BNP sailed close to the wind last year when it appeared to have had set aside 1 billion euros for bonuses. But now it has scaled back that amount by half - even though the corporate and investment bank generated 12 billion euros of revenue.

Like other banks, BNP knows full well that a large part of its profit can be attributed to the easy-money policies central banks embarked on to cushion the crisis - its fixed-income business performed handsomely last year. But this is not the only reason for BNP’s good performance. Its strong retail base, the successful integration of troubled Belgian rival Fortis, a strict group-wide cost policy and skilful risk management also helped the bottom line.

The coming year could see the real economy beginning to bite; provisions for bad loans or troubled countries like Ukraine are on the rise. Still, BNP enjoys robust capital strength and one of the lowest credit default swap spreads among its peers. Prot and his bankers don’t have that much to apologise for.